May's Job Report Is an Onion

Stinky layer after stinky layer, and you're left with tears...

It looked fine from the outside, with 272,000 payrolls added in May. But as soon as you peel off that outer layer, it stinks. Then you start crying.

The May job report from the B(L)S was just awful, with only one good datum point in the whole thing. Amazingly, that was the headline. And it’s quite convenient for the powers that be, since most people don’t read past the headline.

That’s true even for business news, whether TV, podcasts, or newspapers. But we’re here to do deep dives, not superficial glances. So, we suggest you put on a pair of goggles as we peel back the layers of this very stinky onion together…

First, why is the payroll figure rising so much? Two factors explain much of the increase.

When a person gets a second job, they are counted as two payrolls, not just one. That happens because businesses are simply being asked how large their payroll is, not whether any of their workers are also working somewhere else.

The explosion of people working multiple jobs has put the headline payroll figure on steroids without actually increasing the number of people employed.

The cost-of-living crisis caused by today’s higher prices and interest rates has driven countless Americans to supplement their income from full-time work with additional money from a part-time job. We’ve also seen an increase in the number of people working two full-time jobs.

Additionally, as people lose their full-time jobs (more on that in a minute), they’re replacing that full-time work with multiple part-time jobs. In all of these instances, you’re not increasing employment, just the number of payrolls.

Sure enough, employment tanked in May, dropping over 400,000. Worse, another 400,000 people threw their hands in the air and gave up, leaving the labor force entirely.

This drop in employment is why the unemployment rate ticked up last month to 4.0 percent. In reality, unemployment is much worse than that—but wait, we’re getting ahead of ourselves.

Back to those employment figures.

Since November, employment has fallen 783,000, even as payrolls march relentlessly higher. This has exacerbated an already unprecedented divergence between these two metrics.

So, which is true?

The payroll figure is clearly double counting people, but that doesn’t explain enough of the divergence. Now we turn to the second factor behind the anomalous payroll figure: the birth/death model.

In short, BLS needs to estimate how many jobs are being added or destroyed when a firm is created or goes out of business, respectively. The problem is that the assumptions behind this model which made sense in 2019 are now worthless today.

Countless mom-and-pop stores closed forever because of government-imposed lockdowns in 2020 and 2021. Over the last three years, business applications have soared as folks try to start new businesses and replace what they lost.

But the rates of these businesses actually starting after their applications has plummeted, as had their hiring rates. Many new businesses today aren’t employing anyone but the owner/operator—such is the new gig economy.

The problem with the payroll figure is that the BLS is overestimating how many jobs are being created per business application.

Between the methodological problems, the double counting, and other unforced errors, the monthly payroll estimate is now a total cluster dumpster.

That’s why the quarterly census of employment and wages showed job growth last year had been overestimated by about one third. In other words, one in every four payrolls allegedly added last year never existed.

It turns out the labor market has never fully recovered from 2020. Even the inflated payroll figures are below trend.

The employment level is even further below trend.

The ratio of employment to population is also way down.

And the number of people missing from the labor force has skyrocketed and stayed elevated, even though it was trending down from its peak in 2018 until early 2020.

But the important thing to realize here is that all of these “missing” workers aren’t counted as unemployed, despite the fact that none of them have jobs. They are excluded from both the labor force and the unemployed.

That means the brilliant bean counters at the BLS don’t include those millions of missing workers when calculating the unemployment rate. Yeah, you read that right—adding millions of unemployed magically has no effect on the unemployment rate.

So, let’s add them back into the calculation. That increases both the total labor force and the number of unemployed. Here are the results.

The “real” unemployment rate isn’t 4.0 percent - it’s somewhere between 6.5 percent and 8.0 percent. That’s solidly in recession territory. Coincidentally, more than half of Americans think we’re in a recession right now.

If you’re already tearing up, we apologize but we’re not done peeling back the layers of this onion.

The economy is absolutely hemorrhaging full-time jobs, losing over 600,000 last month while only adding part-time jobs on net.

That’s nothing new, but the continuation of a trend. Since November, we’ve lost 1.5 million full-time jobs. Welcome to the gig economy.

Over the last year, all of the growth in employment has come from part-time work, while full-time jobs have evaporated.

This plays into the double-counting problem discussed earlier. As more full-time workers get laid off, they’re having trouble finding new full-time jobs. Consequently, they’re taking multiple part-time jobs.

This shows up in the headline payroll number as “job growth,” or at least that’s how the bureaucrats in Washington, DC like to advertise it.

If you think there’s a glimmer of hope regarding where the jobs are, think again. A lot of these part-time jobs are coming from the leisure and hospitality sector, which was the third fastest growing sector over the last 12 months, and these are low paying jobs.

The only two sectors that grew faster were government and healthcare, which is government-adjacent.

Because the healthcare sector is funded by so much government money, many healthcare jobs are actually taxpayer funded. When a hospital gets taxpayer dollars and uses those to hire a nurse, that’s really an indirect hire by the government.

That means about 60 percent of all job gains over the last year have been either direct or indirect government hiring. That’s the definition of unsustainable.

Lastly, who has the jobs? Hint: it’s not Americans.

The U.S. labor market has basically been turned into a Temp Agency for foreign workers. In the past 12 months, native-born Americans have lost about 300,000 jobs while all net employment gains have gone to foreign-born workers.

Again, this was not unique to May’s report, but is the continuation of a pattern. Not only are native-born Americans millions below their pre-pandemic employment trend, but also below their pre-pandemic level.

There are fewer Americans with jobs today than before the 2020 crash. Four years, and no progress—in fact, they’ve gone backwards.

But with a wide-open border, no enforcement of work visa limits, etc., it’s a bull market for foreign-born workers. Their employment level is about 3 million above its pre-pandemic level, having returned to that growth trend over a year ago.

BLS admits that their foreign-born worker data includes illegal aliens, but the bean counters don’t bother estimating what portion they are of the total.

Other groups have, however, and they attribute half of the payroll growth over the last year to illegal aliens.

Now that we’ve all had a good cry, let’s sum up this onion in all its stinky layers.

We’re losing full-time jobs at a breakneck pace, replacing them with part-time ones. Workers can’t make ends meet because of rising prices. Americans are losing jobs and only foreigners are getting them. A majority of jobs being created are taxpayer-funded. We’re wildly overestimating the number of payrolls and overall condition of the labor market.

The cherry on top (oh wait, cherries go on sundaes, not onions—we’re mixing metaphors…) is that the metro-level data from another BLS report show less than 13 percent of the nation’s metropolitan areas added any jobs in the last year.

This labor market is a veritable house of cards, and a strong wind is only months away…